Market Equilibrium And Disequilibrium

Question 1

Free market definition

Answer 1

Any place where buyers meet suppliers to exchange goods and services, free from government intervention

Question 2

What is equilibrium

Answer 2

Where demand = supply

Question 3

What is disequilibrium

Answer 3

Where demand doesn’t = supply

Question 4

What efficiency is achieved at equilibrium

Answer 4

Allocative

Question 5

What is another term for the free market

Answer 5

Price mechanism

Question 6

What are prices

Answer 6

ARSI

Question 7

What does ARSI mean

Answer 7

Allocate scarce resources efficiently

Ration scarce resources by encouraging/discouraging consumption

Signal excess demand/supply

Incentivise producers to increase/decrease output to increase profit

Question 8

If there is excess demand what will the price mechanism do

Answer 8

Signal excess demand and need for more resources

Higher prices incentivise firms to increase their output to make profit

Ration scarce resources by discouraging consumption

Allocative efficiency

Question 9

If there is excess supply what will the price mechanism do

Answer 9

Signal excess supply and need for less resources

Lower prices incentivise firms to decrease their output to make profit

Ration scarce resources by encouraging consumption

Allocative efficiency